Amortization and Depletion EntriesData related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:Timber rights on a tract of land were purchased for $1,330,000 on February 22. The stand of timber is estimated at 7,000,000 board feet. During the current year, 1,900,000 board feet of timber were cut and sold.On December 31, the company determined that $1,280,000 of goodwill was impaired.Governmental and legal costs of $10,830,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 15 years. Amortization is to be for three-fourths of a year.Required:1.  Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. Do not round your intermediate calculation.ItemImpairment, Amortization or Depletion Expensea.$b.$c.$2.  Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.a.       b.       c.

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Asked Nov 25, 2019
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Amortization and Depletion Entries

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:

  1. Timber rights on a tract of land were purchased for $1,330,000 on February 22. The stand of timber is estimated at 7,000,000 board feet. During the current year, 1,900,000 board feet of timber were cut and sold.
  2. On December 31, the company determined that $1,280,000 of goodwill was impaired.
  3. Governmental and legal costs of $10,830,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 15 years. Amortization is to be for three-fourths of a year.

Required:

1.  Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. Do not round your intermediate calculation.

Item Impairment, Amortization or Depletion Expense
a. $
b. $
c. $

2.  Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.

a.      
       
b.      
       
c.      
       
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Expert Answer

Step 1

Depletion, impairment & amortization refers to the amount of permanent loss in the value of the intangible asset. The reduction in value is calculated according to useful life of the asset. It reduces the value of intangible asset for the period of its use.

Step 2

1)

The amount of depletion, impairment & amortization is calculated as follows:

a)

Purchase price of timber: $1,330,000

Estimated stand of timber: $7,000,000

Timber cut & sold: $1,900,000

Amount of depletion is calculated as follows:

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Depletion ($1,900, 000 / $7,000, 000)x $1,330, 000 = S0.271x$1,330, 000 = S360,430

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Step 3

b)

The amount of impairment of goodwill: $1,280,000

c)

Legal cost of patent: $10,830,000

Time period: 15 years

Amortization ...

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Amortization ($10, 830,000 / 15) x (9/ 12) (S722,000) x (0.75) $541,500

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